It has been about a month since the last earnings report for Nvidia (NVDA). Shares have lost about 10.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Nvidia due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
NVIDIA Q3 Earnings and Revenues Surpass Estimates
NVIDIA reported third-quarter fiscal 2025 earnings of 81 cents per share, which beat the Zacks Consensus Estimate by 8%. The reported figure soared 103% year over year and 19% sequentially, driven by higher revenues.
NVDA’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12.7%.
NVDA’s fiscal third-quarter revenues beat the consensus mark by 5.6%. The top line climbed 94% year over year and 17% sequentially to $35.08 billion. The robust growth in the top line was mainly driven by record sales in the Data Center end market and higher sales across the Gaming, Professional Visualization and Automotive end markets.
Segment Details of NVIDIA
NVIDIA reports revenues under two segments — Graphics and Compute & Networking.
The Graphics segment includes GeForce graphics processing units (GPUs) for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure. The segment also offers solutions for gaming platforms, Quadro GPUs for enterprise design, GRID software for cloud-based visual and virtual computing, as well as automotive platforms for infotainment systems.
Graphics accounted for 11.5% of fiscal third-quarter revenues. The segment’s top line increased 16% year over year and 13% sequentially to $4.05 billion. Our estimate for the segment’s fiscal third-quarter revenues was pegged at $4.16 billion.
Compute & Networking represented 88.5% of fiscal third-quarter revenues. The segment comprises the Data Center platforms and systems for artificial intelligence, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics as well as other embedded platforms.
Compute & Networking revenues surged 112% year over year and 17% sequentially to $31.04 billion. Our estimate for the segment’s fiscal third-quarter revenues was pegged at $28.4 billion.
NVIDIA Market Platform Top-Line Details
Based on the market platform, revenues from Data Center (87.7% of revenues) jumped 112% year over year and 17% from the previous quarter to $30.77 billion. This robust rise was mainly driven by higher shipments of the Hopper GPU computing platform, used for the training and inference of large language models, recommendation engines and generative AI applications. Our estimate for this end-market’s fiscal third-quarter revenues was pegged at $28.5 billion.
NVIDIA witnessed strong demand for its chips used in the Data Center by all customers in both computing and networking markets. During the fiscal third quarter, large cloud providers represented half of Data Center revenues while the remaining stemmed from consumer Internet and enterprise companies.
Gaming revenues increased 15% year over year and 14% sequentially to $3.28 billion, accounting for 9.3% of the total revenues. The year-over-year rise reflected increased sales of its GeForce RTX 40 series family of GPUs and game console system on chips. Our estimate for the Gaming end-market’s third-quarter revenues was pegged at $3.11 billion.
Professional Visualization revenues (1.4% of revenues) increased 17% year over year and 6% sequentially to $454 million. The increase was primarily driven by the ramp of RTX GPU workstations based on the Ada architecture. Our estimate for the Professional Visualization end-market’s fiscal third-quarter revenues was pegged at $475.7 million.
Automotive sales (1.2% of revenues) in the reported quarter totaled $346 million, up 37% on a year-over-year basis and 7% sequentially. The increase was mainly driven by a rise in self-driving technology using NVIDIA Orin and robust demand for new autonomous vehicles (NAVs). Moreover, NVDA also experienced a surge in demand from Volvo, which is launching its fully electric SUV using NVIDIA Orin and DriveOS. OEM and Other revenues (0.3% of revenues) were up 33% year over year and 10% sequentially to $97 million. Our estimates for the Automotive and OEM end markets’ fiscal third-quarter revenues were pegged at $340.3 million and $86.8 million, respectively.
NVDA’s Operating Details
NVIDIA’s non-GAAP gross margin remained flat year over year at 75%. However, the non-GAAP gross margin contracted 70 basis points (bps) sequentially. The sequential decline was mainly due to a shift in the product mix toward more expensive H100 systems in the Data Center.
Non-GAAP operating expenses increased 50% year over year and 9% sequentially to $3.05 billion. The increase was due to higher development costs for new products introduced across compute, infrastructure and engineering development. However, as a percentage of total revenues, non-GAAP operating expenses declined to 8.7% from 11.2% in the year-ago quarter and 9.3% in the previous quarter.
The non-GAAP operating income jumped 101% year over year and 17% sequentially to $23.27 billion, driven by higher revenues. Non-GAAP operating margin improved 250 bps to 66.3% from the year-ago quarter’s 63.8% due to higher gross margin and lower operating expenses as a percentage of revenues. Sequentially, non-GAAP operating margin contracted 10 bps due to a reduction in gross margin.
NVIDIA’s non-GAAP net income margin of 57% for the fiscal third quarter improved 170 bps year over year and 60 bps sequentially.
NVIDIA’s Balance Sheet and Cash Flow
As of Oct. 27, 2024, NVDA’s cash, cash equivalents and marketable securities were $38.4 billion, up from $34.8 billion as of July 28. As of Sept. 27, the total long-term debt was $8.46 billion, which remained unchanged sequentially.
NVIDIA generated $17.63 billion in operating cash flow, up from the year-ago quarter’s $7.3 billion and the previous quarter’s $14.5 billion. In the first three quarters of fiscal 2025, it generated an operating cash flow of $47.5 billion. NVIDIA generated a free cash flow of $16.78 billion in the fiscal third quarter and $45.2 billion in the first three quarters of fiscal 2025.
In the fiscal third quarter, the company returned $245 million to shareholders through dividend payouts and repurchased stocks worth $11 billion. In the first three quarters of fiscal 2025, the company paid out $589 million in dividends and bought back stocks worth $25.9 billion.
On Aug. 26, 2024, NVIDIA’s board of directors approved a new $50 billion share repurchase authorization, bringing the total authorization to $57.5 billion, which has no expiration. As of Oct. 27, 2024, the company has the remaining authorization of approximately $46.5 billion.
NVDA’s Q4 Guidance
For the fourth quarter of fiscal 2025, NVIDIA anticipates revenues to be $37.5 billion (+/-2%). The non-GAAP gross margin is projected to be 73.5% (+/-50 bps). Non-GAAP operating expenses are estimated to be $3.4 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, Nvidia has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Nvidia has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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